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http://www.theglobeandmail.com/serv...ory/Technology/
CRTC expected to rein in big phone companies on VoIP service
By SIMON TUCK
Friday, May 6, 2005 Updated at 8:46 AM EDT
Globe and Mail Update
OTTAWA — The budding Internet-based telephone business is widely expected to be regulated the same way as traditional phone services under a CRTC ruling next week that analysts say will strike a blow to the dominant phone companies.
A senior source in the Canadian Radio-television and Telecommunications Commission confirmed that it has rejected arguments from Bell Canada and Telus Corp. that voice over Internet protocol (VoIP) should be left unregulated like other on-line applications.
If their argument had won the day, their competitors say, the incumbent phone companies would have been allowed to limit the number of new entrants by slashing prices in the short term.
Instead, the CRTC's ruling would mean that the large telcos would have to get CRTC approval for their prices, thereby further opening the door for startups, such as Primus Telecommunications Canada Inc. and Vonage Holdings Corp., and cable companies, such as Rogers Communications Inc., Shaw Communications Inc. and Vidéotron Ltée. to pursue the lucrative residential phone market.
VoIP is a technology that allows for telephone service over the Internet and the CRTC's much-anticipated ruling is expected to be a key in determining which industry -- and which companies -- gain the early edge in the nascent niche.
Analysts say the battle for the VoIP market is a flashpoint in a larger, high-stakes war between two converging sectors: cable and telephone. Technology is overhauling telecommunications as the two sectors increasingly roll out similar products. The central debate over the regulation of VoIP is whether it is a phone or Internet product.
The phone companies told the CRTC last fall during VoIP hearings that more competition and less regulation would be good for consumers and the industry. Even though local phone markets were opened up for competition seven years ago, the large incumbents still control about 97 per cent of the market.
Many of the telcos' rivals, however, warned the CRTC that the regulator had to ensure that the incumbents weren't allowed to use VoIP as a "loss leader" that would deter competition through artificially low prices.
The cable companies, some of which are making hefty investments in the lucrative phone services industry, say rapid deregulation would allow the telcos to take over the emerging VoIP market before others are given a fair chance.
UBS Securities Canada Inc., which is among the many brokerages expecting a win for the cable companies, said the ruling expected on Thursday will accelerate the cable industry's moves toward bundling services. The VoIP market, meanwhile, will jeopardize between 15 and 20 per cent of the incumbent phone companies' revenue and between 30 and 35 per cent of their pretax earnings before interest, taxes, depreciation and amortization, analyst Jeffrey Fan said.
Janet Yale, executive vice-president of government and regulatory affairs at Telus, called VoIP a "paradigm shift" because it opens up the phone business to the cable guys. "From our perspective, the entry of cable changes everything."
Lawson Hunter, executive vice-president of regulatory affairs for Montreal-based BCE Inc., which owns Bell Canada, wouldn't comment on the potential impact to Bell, but said that it wouldn't be fair if the CRTC were to regulate only the phone incumbents in the VoIP market. About 18 other countries have issued VoIP rulings and only Singapore has decided to regulate pricing, Mr. Hunter said.
It is estimated about 25,000 Canadians use VoIP services, but Iain Grant, managing director of SeaBoard Group, a telecom consulting firm in Montreal, said he expects the market to grow by about tenfold by the end of this calendar year.
Canada's local telephone market is worth about $10-billion a year.
Mr. Grant also said VoIP will open up the telephone services market to greater competition. "Ten years ago, you needed a trillion dollars to get into this business -- now you need $20,000."
The CRTC's ruling, which is expected to be in line with its preliminary ruling on VoIP last year, is not expected to end the battle over the issue. Analysts said the telcos would likely appeal to the federal cabinet and VoIP could also be part of Industry Minister David Emerson's coming telecom review.
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